South Africa has joined a list of 47 other countries that have committed to adopting a taxation standard enabling them to go after individuals and businesses that fail to report earnings and pay taxes on crypto, NFT and other digital assets by 2027.
According to a statement last Friday, the South African Revenue Service (SARS) welcomed the standard developed by the Organisation for Economic Cooperation and Development (OECD). This new standard allows the automatic exchange of information related to the ‘crypto-asset’ tax. It falls under the OECD’s mandate by the G20 to develop a global framework for easy and automated exchange of tax-relevant information to curb tax evasion.
Last week, the 48 countries adopting the standard set a 2027 deadline to implement it in their laws. The 48 countries and jurisdictions, which include the United Kingdom, the United States, Mexico, Germany, France, Canada, Brazil, and Singapore, pledged to “swiftly transpose” to the Crypto-Asset Reporting Framework (CARF) standard by 2027.
SARS said that the CARF standard would help to keep pace with the rapid development and growth of the crypto asset market and ensure that recent gains in global tax transparency would not be gradually eroded.
In its words:
“The widespread, consistent and timely implementation of the CARF will further improve our ability to ensure tax compliance and clamp down on tax evasion, which reduces public revenues and increases the burden on those who pay their taxes.”
In a nutshell, the South African Revenue Service hopes that the new global standard will enable it to crack down on tax evaders in South Africa.
How this will work: a case study of the US
There are not enough instances of countries that have implemented a crypto/NFT taxation system. However, the United States Internal Revenue Service comes in handy. Although South Africa hasn’t released a framework on how it would go about this taxation system, let’s take a look at how it will work if it borrows a leaf from the United States.
In the United States of America, cryptocurrency is subject to crypto tax and is classified as transactions instead of property or assets. As a matter of fact, failure to accurately track and report these transactions can result in penalties and fines.
Also note that crypto is subject to taxation in two ways: capital gains tax and income tax.
Capital gains tax applies to profits earned from the sale of an asset that was purchased at a lower price. Any gains realized from selling or trading a digital asset for a higher price than purchased are subject to capital gains tax.
If crypto assets were held for less than a year, it is considered a short-term gain. If it was held for more than a year, it is regarded as a long-term gain.
Income tax on the other hand applies to earnings from the mining and staking of tokens. These include receiving cryptocurrency from an airdrop or any crypto interest earnings from decentralized finance (DeFi) lending.
Also, receiving cryptocurrency as a means of payment for labour is also considered an income tax event.
It is now up for grabs whether South Africa will go with this system or come up with its own model.
Like South Africa, Like Nigeria?
As of now, South Africa is the only African country to announce interest to pass the new standard into domestic law.
Recall that on the eve of his departure from office on May 28, former Nigerian President Muhammadu Buhari signed the Finance Act, 2023, which included a new law to tax gains on digital assets like cryptocurrency, into law. According to the Finance Act, there is now a 10% tax on profits on digital assets.
Although much hasn’t been heard about this and how it would work since President Bola Tinubu assumed office, this new development from South Africa might motivate the country to tidy up its plans regard as the government continues to look for new sources of revenue.
With a reported $56.7 billion worth of crypto transactions between July 2022 – June 2023 in Nigeria, a tax on crypto assets might come in handy.
Also, in July, Kenya implemented a new taxation regime under the Finance Bill that levies a 3% tax on all digital asset transactions, including NFT transfers. However, the Blockchain Association of Kenya petitioned against this development.
There now seems to be a newfound synergy between Kenyan authorities and its blockchain industry players as there are reports that the body has been charged with the responsibility of coming up with a blockchain adoption framework for the country.
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